tv U.S. Senate CSPAN May 12, 2010 5:00pm-8:00pm EDT
limits, but these energy derivatives, because they were exempted by this 20000 act, didn't. so somehow we were saying that hamburger in america and making sure it played by the rules was more important than whether oil or electricity or these other things, as we know c.d.o.'s, played by the same rules. so make no mistake, this underlying bill gives us this kind of predictability and certainty in the tried and true ways that markets function: with transparency. we're talking about old-fashioned capitalism here. we're not talking about oligarchies where people hide behind things. who knows what's going to happen with the fat finger the other day and what moved the market. but i know this: if you come back to capital trades with transparency and pricing and realtime marketing and those speculation limits, their legislation on the other side does nothing to make sure that
we prohibit the excessive speculation that can move the market in a manipulative way. mr. president, i hope that we do not adopt this substitute amendment. let's show america we are serious about the kind of transparency that has worked in markets and are tried and true parts of our capitalist system. i thank the president. i yield the floor. mr. dodd: mr. president? the presiding officer: the senator from new hampshire. dodd -- mr. gregg: i wanted to rise in support of the saxby-chambliss amendment, senator chambliss of georgia, and express my concern, my very serious concerns about the language which has been brought forward by the chairman of the committee, both the agriculture committee and banking committee, relative to derivatives. let's begin with what our purpose should be here. let's remember that derivatives, as has been said before on this
floor numerous times before -- i think the senator from alabama said it extraordinarily well. our critical part of how main street maintains its economic vitality. credit is what makes america work. i mean, one of the great geniuses of our society is that we are able to produce credit in a fairly ready manner, which is reasonably priced and which people who wish to take risk can take advantage of in order to create economic activity and jobs. the oil that basically keeps the credit active is derivatives for all intents and purposes. as has been pointed out, if you're manufacturing an item somewhere in america and you enter into a contract to sell that item, let's say, overseas, there are a lot of risks on how
you're going to make money on that item that you have no control of. let's say you make it one day and sell it six months later. you enter into a contract, you can sell six months later. there is a lot of risks there you don't have control over. you know how to manufacture it, you know how to create it. if it's credit, you know how to produce it. but you don't have control over the exchange rates which you're dealing with. you don't have control over the cost of the raw materials which you're using. you don't have control over whether various parties that enter into this transaction as it moves through the commercial stream survive or go out of business or experience some huge economic upset. well, in order to avoid all of that and just be the person who wants to produce the good and sell it, you buy derivatives, which are essentially insurance policies to make sure that the
risks which you can not control, you have insurance against. that's derivatives in its simplest form. it also affects all sorts of other instruments, of course. financial instruments and commodity instruments. but basically it's a capacity of somebody to make an agreement with somebody else and know that that agreement is not going to be affected by outside events. or if the outside events do occur, it's going to be in place a vehicle to protect you from the risks which that outside event may create for you. so, derivatives are crucial to our capacity as a society to be economically vibrant. now, we also know that during the economic downturn, during the very severe financial crisis which we had, that the fact that we had so many derivatives in place which were based off of
contracts which are not properly supported created a huge cascading event which almost forced our entire financial structure to come to a halt. in fact, it did on one evening. and was about to put our economic house into extreme distress, because the derivatives markets had not been properly regulated or managed. now, that wasn't the primary cause of the event of the late 2008 period. the primary causes of the events of the late 2008 period were very bad underwriting. in fact, virtually no underwriting standards in some instances where loans were being made. easy money and regulatory arbitrage. but the accelerant which took those causes and basically turned it into an event of immense proportions which almost shut down america and would have caused massive dislocation in our nation had it been allowed
to go uncontrolled, had the fed and treasury not stepped in and taken very definitive action, the accelerant was the derivatives market. and the classic example of it, of course, was the a.i.g. situation which has been cited on the floor numerous times as the example of what was wrong with a regulated market where essentially you had a company which was issuing insurance based on its good name. virtually nothing else behind the insurance besides its good name. and when that insurance started to get called because the contract started to fail, and the counter parties became concerned, there was no capacity to support the insurance. so our purpose here should be to reorganize our regulatory structure so that that type of event doesn't occur again. that should be our purpose. while at the same time recognizing that we need a very robust and vibrant derivatives market if we're going to be
successful as a nation, if we're going to continue to have an economic vitality as a nation. our goal should be, one, to put in place a structure which as much as possible foresees and limits systemic risk caused by the derivatives market -- that could be caused by the derivatives market. and two, maintain an extremely vibrant directors market where -- be derivatives market where america remains the best place in the world to get credit. unfortunately, the pending bill undermines the second part of that effort. it could be argued the first part of the effort in trying to anticipate systemic risk is addressed in this bill, but it addresses it in such an unwieldy and unmanageable and in some ways counterproductive way that it actually undermines the basic goal which is to keep the system sound and also keep the credit
markets vibrant. and why is that? well, there are a number of reasons for it. but the two most difficult parts of this proposal relative to getting it right are the fact that it forces the wap desk to be -- swap desk to be spun off of financial houses and it essentially forces instant movement from and basically almost total coverage from clearing houses into exchanges. in both those instances you're basically going to create fairly close the opposite result that you seek if you pursue this course. i would predict if this bill were to become law in its present form, it would be likely
that, one, a large amount of derivatives activity would move overseas. two, a large amount of derivative activity which presently occurs and which is necessary for commerce would have to be restructured in a way which would be extraordinarily expensive to people who are doing that commerce and would, therefore, curtail significantly commerce. three, the credit markets would significantly contract by a significant amount of money, probably by as much as three-quarters of a trillion dollars. four, the institutions which would be responsible for creating the derivatives market would actually be less stable, the market makers would be less stable than what we presently have today. now, you don't have to believe me to understand the seriousness of this and accept this as a statement or an assessment of
what the present bill does. i mean, granted, i'm just one member of this body that has an opinion on it. but we do hire people as a government to take a look at something like this and say does this work or does that work? and they are charged with the responsibility of accomplishing the two goals which i mentioned. one, avoiding systemic risk. and, two, having a vibrant credit market. one of those agencies is the federal reserve. they've taken a look at this language in the dodd-lincoln bill and they've concluded this. this is their conclusion, the federal reserve: section 106 would impair financial stability and strong prudential regulation of derivatives, would have serious consequences for the competitiveness of the united states financial institutions and would be highly disruptive and costly both for banks and their customers. that's the conclusion of a fair umpire, the federal reserve.
there are a lot of people around here who don't like the federal reserve. but their job is to look at something like this and say does this work or does that work in making our markets more stable, sounder or risk-averse and more competitive. their conclusion is this language does just the opposite. would be highly disruptive and costly for both banks and their customers. but tpup don't like the federal reserve -- if you don't like the federal reserve, listen to the fdic. the fdic under sheila bair has been one of the best performing agencies of our federal government. they stepped in on numerous occasions and stabilize bed banks which far overextended their capacity and gotten into serious liquidity positions and settled those banks out in a way in which very few customers lost anything. what did the fdic say when they looked at this, because their responsibility is to maintain safety and soundness of banks.
sheila -- the chairman of the fdic, sheila bair, in a letter to -- well, i have to figure out who it went to, but i think it was to members of congress, said "by concentrating the activity in an affiliate of the uninsured banks" that means spinning them off under the proposal under this bill -- "we could end up with less and lower-quality capital, less information and oversight for the fdic and potentially less support for the uninsured bank in a time of crisis. thus, one unintended outcome of this provision would be weakened, not strengthened, protection of the insured bank and the deposit insurance fund, which i know is not the result any of us want. then we have chairman volcker
who i think everybody agrees is a fair arbiter around here, and he has also said that this language in this bill overreaches and does not work. and i'll submit his letter to the record. so we have these independent arbiters, these fair umpires of what we should be doing in order to maintain financial stability and strong credit markets saying listen, don't do it this way. don't do it this way. there are ways to do this, however, ways to make sure that we have a strong derivatives market, which is also safer, sounder and is not subject to systemic risk. senator chambliss' bill accomplishes that in a very effective way. how debaseically do it? well -- how debaseically do it? how did he basically do it? make sure all the derivatives are clear. they go through a clearing process. what does a clearing process
mean? it basically means you get counterparts put up margin, they have to put up actual assets, margin, liquidity in order to be sure that there's something behind their position, so that if they have a problem and they have to be called on to pay up their position, they have the capacity to do it and it's there. that's why we have a clearinghouse, because the clearinghouse becomes basically the place where that occurs and it becomes the process by which that occurs. and you make sure that the clearinghouse itself, because it is -- it stands in and basically is the guarantor, for lack of a better word, of the contract, that it has the capital and the adequacy to make sure that those contracts will not fail. so as a very practical matter, you can do this by creating a proper structure using clearinghouses. and then to the extent -- and you make sure the clearinghouses have proper oversight from the s.e.c. or the cftc.
and then as these instruments, these various derivatives, these various types of tkreurbts, and -- derivatives become more standardized, and a lot already are standardized, you move them over to an exchange, which is the ultimate process of making sure that that you don't have an issue of solvency behind the instruments. and so as you move them to an exchange, are you able to create an even stronger market. but you don't mandate that everything go to an exchange right out the door, because if you did that, you'd end up with a lot of derivatives which are still too customized to be able to move to an exchange and they would not be able to be brought forward unless you contract the market again. and you also don't take the swap
disks and move them out of the financial houses, because in doing that, you would have to have a new capital base for the swap desk, which is expressed by the fed and the fdic and chairman volcker, which would force a massive contraction in credit because that capital would no longer be available to underwrite credit and in addition you would have much weaker institutions standing behind the swap disk, which, again, is the point made by the fed, the fdic, and chairman volcker. so it is not necessary to go down the root that's -- the route that's outlined in this bill in order to accomplish the goals which i all have. in fact, if you go down the route presented in this bill, you actually undermine the goals we all have, which is to have a more -- a derivatives market which is less prone to systemic
risk and which is strong, sound, and vibrant. rather what senator chambliss has proposed makes the most sense which is a comprehensive reform of the derivatives market in a way that insists that for the vast majority of derivatives, they end up going through a clearinghouse process, and if they're standardizable, they end up on an exchange. if they're for purely a commercial purpose, a single purpose commercial undertaking, then they're able to be exempt from the clearing activity. this would create a much more robust undertaking of credit -- of creation of credit in this country. it would maintain the vitality of the derivatives market in this country while at the same time protecting and ensuring that we had a sound derivatives market. it would avoid what i believe the inevitable outcome of this
language would be under the dodd-lincoln bill, which is that we would weaken the derivatives market, weaken the systemic protections, and end up forcing overseas a large amount of economic activity which appropriately should be done here in the united states and which is important to our nation's capacity to be competitive on main street. and, remember, this is about main street. so i certainly hope people will support senator chambliss' proposal. it makes a lot of sense. it's well thought out. it's not exactly what i would do were i writing this myself, but it's a very good piece of legislation. and it should be supported and i would hope my colleagues would do so. mr. president, i yield the floor. the presiding officer: the senator from arkansas. mrs. lincoln: mr. president, i appreciate, again, all the debate we've had here and the discussion. i want to thank my colleague
from georgia, my ranking member on the ag committee. he and his staff are a tremendous group to work with and i appreciate all of that. i feel very confident that we worked hard and i think in the underlying bill we've come to agreements with chairman dodd on, we lowered the systemic risk by requiring the mandatory trading and clearing which my colleague senator cantwell did a tremendous job explaining, bringing 100% transparency to the market, protecting municipalities an pensions and retirees, regulating foreign exchange transactions and increasing the foreign authority to punish the bad behavior that we've seen. and to that point, i believe not since the great depression, have we seen such devastating owenss of a banking and financial system gone wrong and it really does call us to action. we're not here to take easy votes. we're here to tackle complicated problems an find those solutions that we know are going to
benefit all of america and we certainly shouldn't squander that opportunity for historic reform nor support any effort to weaken it. therefore, i certainly would like to recommend a no vote on this amendment and respectfully encourage my colleagues to do the same. and, again, thank my colleague from georgia for his hard work and -- and that we will continue to work together to find those -- the common ground that we know is going to be the best place for us to all be. thank you. a senator: mr. president? the presiding officer: the senator from georgia. mr. chambliss: mr. president, first of all, let me extend the same courtesy to my chairman. she is a dear friend. we work closely together on virtually every issue. it is unusual for us to disagree on any major issue. but she and her staff have been great to work with, always, they've been very open and we've had an open dialogue, we just simply disagree about the way that this issue needs to be --
needs to be dealt with. and let the me just say that an indication of how complex this issue is and why this issue is so important and why we don't need to have our -- our constituents expend money when they don't need to expend money that's going to be passed on to consumers of every single product virtually that's made in america, is this: there are a lot of people who have gotten up here on the other side and have spoken about this -- this amendment. and i know they don't intend to get up here and make statements that aren't correct. but, frankly, that's what we heard. and all i can attribute that to is the fact that this is such a complex issue that the folks who have been speaking about my amendment simply don't understand it. and let me just give you some examples. we -- we tuck about -- large
companies falling prey to derivatives. large companies use derivatives in a very meaningful way that is advantageus to every single american customer. everybody who buys something. i don't care whether it's an automobile, whether it's a widget, whether it's a drug, every major manufacturer uses derivatives. and there are very sophisticated individuals that deal in these products and they know what they're doing. they're not falling prey to the use of these products. there's been a couple of folks who have said that -- that we don't have transparency. that we ought to let these products come out of the shadows. let me make it very clear -- and i think the chairman would agree with me that 100% of the transactions under our amendment
would be out in the open. there would be a clearing of nonunique contracts, which means about 85% to 90% of all derivatives contracts under our amendment would go to a clearing house. the others that the end users, the manufacturers, the -- the energy companies that go out and not only borrow money, but buy coal or buy natural gas that want to have stability in their products, those individuals end users would be exempt, but every single one of them would have to report every single contract to the cftc or if it's secured by a secured instrument to the s.e.c. 100% transparency on every
single swap and derivative. now, i don't know why folks can't understand that in our amendment because it's pretty plain. i think senator dodd did a good job of -- excuse me, senator gregg did a goodmebo said that - they don't want to return to old-fashioned capitalism. well, i'll tell you what, if -- if i am considered to be one who is promoting old-fashioned capitalism in my amendment, i plead guilty. because old-fashioned capitalism has made this country the strongest economy the world has ever seen. and old-fashioned capitalism has an alternative. it's called socialism. and i do not believe in socialism. i believe that if somebody wants to work hard and generate money to make a better quality of life for them and their family, they ought to have the opportunity to
do it. and that's what old-fashioned capitalism is all about. lastly, i -- i could go on and on giving examples of some things that have been said that -- that are really out of context, but let's get down to the last bottom line and that is: who supports the underlying bill? who supports the dodd-lincoln bill? the simple answer is wall street. and why do i say that? at a hearing in the governmental relations committee last week goldman sachs was called to the hill to testify before senator levin and senator coburn's committee. senator coburn asked a question directly of the goldman sachs' aingtagents and said: do you sut the underlying bill that is now on the floor of the senate?
without hesitation he said yes. why would he support it? well, look, they're going to make a lot of money off of this underlying bill. why do i say they're going to make a lot of money? who's going to clear these contracts? they're going to be cleared by wall street clearing houses. under the underlying bill there's another provision here that hadn't even been talked about today, and that is when an end user who is exempt from clearing notifies the cftc or the s.e.c. that they have a contract, they're required to -- to produce that contract to what's called a swaps execution facility. it's a mini clearing house. in addition to go to the swaps execution facility, that contract after that has to go to a clearing house. so what you have is you have a party who agrees with a
manufacturer that they're going to enter into an agreement on a derivative for an interest rate, let's say, that swap -- or that entity that's put that deal together's going to charge a fee. they would do that anyway. that entity is also likely to be the swaps execution facility that's required to review that contract. they're going to charge another fee for doing that. then they're going to have to go to a clearing house that's going to charge another fee. so it's pretty easy to see why wall street likes this provision, likes the underlying bill because they're going to make a lot of money in fees off of these -- these contracts. the only other comment i want to make with reference to comments that have been made is -- is whether or not these end users leave the u.s. markets and go
overseas. there's been contention made that that's just not going to happen. they're not going to do that. well, they are. other -- other markets have already indicated they're not about to follow our lead. the london exchange has openly said they're not going to follow our lead. you've heard nothing out of the european exchange, you've heard nothing out of the singapore change. why? they're listening to what we're doing. they're going to solicit customers today to go to their exchanges -- our constituents are not going have to pay these huge fees on those exchanges that are required under this bill. it only makes sense that if they can generate more money for their bottom line and they can sit in their office in new york city, atlanta, georgia, or
multree georgia and execute a contract on the singapore exchange where they don't have to pay that fee, you better believe where they're going to go. they don't have more risk. it's the same amount of risk. and is the s.e.c. or the cftc going to know they've done that? absolutely not. it will not be reported to them. well, i could go on and on, mr. president, but at the end of the day if you want to see 100% transparency and you want to see the end users in this business who utilized these swaps and derivatives in a nonsystemicly risky way, then you need to support my amendment. if you listen to the manufactures across america who know that they have used these products for decades and have done so in a safe way, in a way that provides a -- a -- a cheaper product for their consumer, you need to support my
amendment. with that, mr. president, i would yield the floor and i would ask for the yeas and nays. the presiding officer: is there a sufficient second? appears to be. a senator: mr. president? the presiding officer: the senator from arkansas. mrs. lincoln: i ask unanimous consent that we proceed -- the senate proceed to the vote in relation to the chambliss amendment 3816. at 5:30. with no amendment in order to the amendment prior to the vote, and that upon the disposition of the chambliss amendment, the next two amendments be the reed amendment numbered 3943 and the sessions amendment numbered 3832. the presiding officer: is there objection? without objection, so ordered. the question is on the chambliss amendment. the yeas and nays were ordered. the clerk will call the roll.
[inaudible] the presiding officer: without objection. the presiding officer: the senator fro connecticut. mr. dodd: mr. president, if i could have the attention of our colleagues here. i'll just try and give you some sense. senator reed of rhode island and senator brown of massachusetts have an amendment which will take just a few minutes, a very few minutes, to discuss and have a vote on that, which we've agreed to. at the conclusion of that, that would be the last vote of the evening. then the next amendment would be the sessions amendment, which senator sessions has agreed to debate that amendment tonight.
we'll vote on that in the morning. senator specter will bet be the following amendment and we'll debate tonight and vote in the morning. senator collins has an amendment if she would debate this evening, we would try to line that up in the morning. so we would have a series of votes in the morning. so the last vote would be on the reed-brown amendment. and if senators would stay around to hear that, we would be through for the evening with any votes. at least that's the plan. a senator: mr. president? the presiding officer: the senator from rhode island. mr. reed: mr. president, i would a -- the presiding officer: order, please. mr. reed: mr. president, i would call up amendment 3943. the presiding officer: the clerk will report. the clerk: the senator from rhode island, mr. -- the senator from rhode island, mr. reed, for himself and mr. brown of massachusetts, proposes an amendment numbered 3943 to amendment numbered 3739. mr. reed: thank you, mr. president. i would ask to dispense with the
reading of the rest of the amendment. the presiding officer: without objection. mr. reed: mr. president, i -- a senator: may we have order. the presiding officer: yes. please take your conversations outside. otherwise be in order, please. mr. reed: mr. president, i propose to make very brief remarks about this amendment. my colleague from massachusetts, senator scott brown, will make remarks. we'll try to expedite a vote but i would request that the yeas and nays and a recorded vote be taken when i conclude and when senator brown concludes. the presiding officer: without objection. mr. reed: thank you. the presiding officer: is there a sufficient second? there appears to be. the yeas and nays are ordered. mr. reed: thank you very much, mr. president. this amendment is very straightforward. it would provide within the new office of consumer financial protection a military liaison, an individual who is charged with protecting the interest of soldiers, sailors, airmen, marines as consumers. let me tell you -- and i'll
elaborate later -- but let me be very brief and to the point. we have soldiers, sailors, airmen, marines and their families who are consistently exploited by unscrupulous car dealers, payday lenders, a whole panoply of people that flock around military bases to exploit these individuals. they are in a very difficult situation. they have stress because they're on constant deployments. in many cases, military families today have one spouse deployed and one military spouse back taking care of children. i don't have to go much further. the president has -- understands this from his dealings with the u.s.o. and families across the country. let me give you just two examples. i could give you 200 examples. and if this was not true, it would be almost humorous but it's sadly true. this is one i like. this is the free transportation to the beach ploy.
true story. car dealer from virginia beach went to camp lejeune, offered free round-trips to the beach. and these are young marines. if you've been to camp lejeune, it's not the paris of north carolina. it's a place where you need a little diversion. they wanted to go to virginia beach. they were given this round-trip. they got to virginia beach. there was no round-trip unless they bought a car from this car dealer. well, he was caught, lost his license, reappeared later without a license making the same ploys. i want to make a point. i'm not condemning car dealers. in my home state, they're great, they do wonderful work for the community. but exploitation by car dealers of military personnel is the most significant consumer complaint. 72% of the complaints, it's been estimated, are against car dealers and unscrupulous activities by these dealers around military bases. one other example.
again, fort riley, kansas. army specialist jennifer howard bought a car while she was stationed there. turns out the dealership which arranged her financing charged her for features on the car that she never got, like a moon roof and alloy wheels n. her words, "the dealership knows that we're busy, we're tired, we don't take the time because we don't have a lot of time. it's like get in, get out, do what we've got to do. if we get [expletive deleted] we'll deal with it then." that's no way to treat soldiers, no way to treat consumers. this liaison will be very important. but i should say, it has to have the authority within the bill to actually act against the disruptive behavior of auto dealers, payday lenders and a whole host of individuals. the rent-to-own people, they are trying to scam our troops of, they're trying to scam consumers. and, frankly, they don't care if you're wearing a uniform or not, they're out to scam who they can. we've got to have a strong
consumer financial protection agency, and we particularly have to have someone in there who's watching over the troops. i would yield to my colleague. the presiding officer: the senator from massachusetts. mr. brown: thank you, mr. president. i want to thank senator reed for his idea, his thoughtfulness in trying to prk our troops, and i want to discuss this amendment as well and as you know, senator reed has a distinguished career, both in the army and as a senator. andes a always done his duty looking after the men and women not only of his state but in uniform. and i want to thank him for the opportunity to work on this particular amendment with him, and also, mr. president, as a 30-year member of the army national guard, i share senator reed's interest and commitment to our nation's soldiers and their loved ones. as we all know, they make extreme sacrificings to keep us safe and keep our nation safe. this nation would dedicate resources within the new consumer protection bureau to
serve as a watchdog for military personnel and their families. as you know, in our military culture of honor, courage, and commitment, it demands prompt repayment of debts and as a result payday lenders often congregate outside military facilities. yet unfortunately the financial terms are not owls clear. they're not always offered up in free form, and they typically lead to very, very expensive and bad loans. other financial predators have sold military personnel bogus life insurance policies, mr. president. and these practices, as you know, take advantage of our soldiers. our young enlisted soldiers are particularly val vulnerable. they don't have the tools and resources and guidance and financial assistance they need to make good decisions, and they often find time to void far from their support. they have steady paychecks and promised pension benefits and, as a result, those financial predators see them that is a way
to make money. so they risk their lives defending our nation in places, as you know, like iraq and afghanistan, and at home they also wear a big target on their back, and in a soldier gets into financial trouble with an unscrupulous lender, how is that soldier going to dispute those charges when they are deployed or under the stress of pre- or post-deployment. the pay-day loans and other debts can pile up quickly. this dedicated office would be able to help sort out the truth and get them back to financial stability. and this issue, as you know, mr. president, i'm about to conclude, has received a lot of attention. just today there is an article in the "washington post" talking about -- the presiding officer: thank you, mr. president. talking about how extra consumer protections are needed for our men and women fighting. citing the specific example of car dealerships employing high-pressure tactics to trap military families into expensive
loans. i urge you to put a cop on the beat to make sure that our men and women in uniform has v. a chance to fight back against financial predators. thank you, mr. president. i yield the floor the balance of my time. the presiding officer: is there further debate on the amendment? if not, the yeas and nays were previously ordered. the clerk will call the roll. vote: stphaot vote:vote:vote:
the presiding officer: any senator wishing to vote or change their vote? seeing and hearing no one, the yeas are 98, the nays are one, the reid amendment number 3193 is agreed to. a senator: mr. president? the presiding officer: the senator from connecticut. mr. dodd: mr. president, i -- i believe that we're going to -- let me -- i'll yield the floor. mr. mcconnell: mr. president? the presiding officer: the republican leader. mr. mcconnell: i thank my friend from connecticut. he was aware that i was going to ask consent for 30 minutes, a colloquy between senators barrasso, and myself as if in morning business. the presiding officer: without
objection. mr. mcconnell: mr. president, let me just make a few observations here and i'll turn to -- first to senator roberts. the subject we'd like to discuss is the burwick nomination to be administrator of c.m.s. to be perfectly frank with you, i think many of us are alarmed by the focus on the british system where government makes decision for people on their care. in fact, i'm reminded of a decision by the department of health and human services that i personally had a good deal of concern about last summer to limit the dissemination of information by companies who were in the medicare advantage business so that they could not communicate with their customers, clients, their opinions about legislation that
would affect their product. a stunning government gag order in effect saying to a corporation you're not free to discuss a public issue before the senate and the house. we're going to tell you what you can say. i mean, one of the most blatant examples of a government basically squashing free speech is a condition for doing business with the government. now we have this nominee who is applauding -- applauding a decision -- a system where care is delayed, denied, or rationed. so i'm particularly concerned that this attack on free speech is just a first step toward much greater government intervention. i'll be talking with dr. burwick
about his plans. but now i'd like to turn to senator roberts who has spoken to dr. burwick, maybe as recently as today, and get his thoughts. mr. roberts: if the distinguished republican leader would yield, i'd be happy to respond. i would tell the distinguished republican leader -- first, i'd like to thank you and the from - from wyoming who is always bringing news about the health care bill and some of the problems that we're experiencing, but thank you for letting me join in this colloquy. we're talking about president obama's medicare and medicaid service, every health care provider in america knows about c.m.s. and the nominee is dr. donald
burwick. and i just met with dr. burwick and heard some of his thoughts on the direction that american health care, and particularly medicare and medicaid should take. he is very affable, friendly doctor from connecticut. he has a wide background in terms of health care. and i've been reading up on dr. burwick who has a prolific record of statements an speeches an books that further lay out his ideas of the future of health care. i recommend that everyone within the health care industry and every health care consumer to get a hold of these speeches and statements and, if possible, books and read them. and here's what i learned, dr. burwick, i would tell the distinguished republican leader, is a huge fan -- a major champion and a contribute terror the british national -- contributor to the national
health care system. i have a quote, "i am romantic about the national health service; i love it" it is not just a national treasure, it is a global treasure. i understand that some people love their jobs. why is this important because the n.h.s. rations health care and the n.h.s. denies and delays therapy in regards of breast cancer, multiple sclerosis, kidney cancer, macula degeneration, patients required to go blind in one eye first, brain tumors, patient group coalition called the group that rations health care in great britain. the quote by dr. burwick is not whether the decision is whether
we will ration care but whether we will ration with our eyes open. so consequently and i think that the -- that the good senator from wyoming has something to say about that in regards to rationing health care and the british system. mr. barrasso: i agree with my colleague because that's what's happening with the health care system. it is delayed care and delayed care to me equals denied care and this has been such a major topic for discussion among the people in britain, that it was brought up in the recent debate for the prime ministership in the election, the first televised debate ever. one of the questions was then asked of prime minister gordon brown and they said, what about the national health service? people have to wait too long. and we have a transcript because i read about this in the local papers and got the transcript.
and he talked about people with cancer. now, this is very important to me, mr. president, because my wife, bobby, is a breast cancer survivor. she was diagnosed in her 40's as a result of a screening mammogram. so we spend a lot of time thinking about, talking about cancer, as do many families in this country. well, this is what he said about people who have cancer. this is gordon brown answering the question about what about the national health service and the long, delayed time before treatment? he said they will also be able to know that their operation, he said, will be in 18 weeks -- in 18 weeks if you're a patient. this is a cancer naisht need of an -- patient in need of an operation. 18 weeks, mr. president, for your cancer operation and that's what the politician prime minister of england is promising the people as an aspirational goal. it makes you wonder how long is the delay right now. so it's no surprise when we take a look at the -- at the lancet
british medical journal when their august of 2008 statistics say that in every category americans survive cancer. american cancer patients have a higher survival rate of every major form of cancer than those in britain. they have a higher chance of surviving colon cancer than british women. american men have an 0% -- 80% survival rate. i have a list. the survivor rates are better in the united states than they are in britain. and it's not that our doctors are any better, it is that the treatment is more timely. so can you imagine, mr. president, being diagnosed with cancer and being told that your operation would be coming in september? i mean here we are in may and 18 weeks from now, september is
when you'll have your operation? all of that time the cancer can be growing, the cancer can be spreading. so when you think about that, as a patient in the united states, you say do i really want dr. berwick, do i want somebody who is in love with the national health service of britain, someone who says they have incredible respect for the way it works and thinks it's the right way to go? why would an american citizen want that person to be in charge of medicare and medicaid for this country? so i just have to respond to my colleague that, you know, as a physician who has practiced for 25 years and as a husband of a wife who is a breast cancer survivor, who has had detection through a screening ma'a mammog, and then very rapid surgery where there actually was a node, a spread from the breast to one of her lymph nodes, i think she
is alive today because of the screening mammogram and the timeliness of her surgery and treatment in the united states. so i see the minority leader, and i see he is incredulous that we would be considering that sort of a system and that sort of a director for medicare and medicaid in this country. mr. mcconnell: yeah, i would say to my friend from wyoming, wyoming, kansas, and kentucky have a large -- a lot of rural areas. one of the things that dr. berwick has made very clear, there's an article he wrote called "buckling down to change" in which he says there ought to be a concentration of services in metropolitan areas. he says most metropolitan areas in the united states should reduce the number of centers engaged in cardiac surgery, neonatal intensive care services. what he's really saying is narrow the specialities down to
metropolitan areas only, and i just think of how that would work in a state like mine. we have a city in kentucky which is in the mountains, about 2 1/2 hours from the closest major city, lexing ton. i wonder how it would work in my state to have to drive 2 1/2 hours to put their baby in a hospital neonaturnatal intensive unit. i mean, clearly what he is talking about here is major rationing of services, which would be bad enough for the urban areas lucky enough to still have the service at all. but for states like wyoming and kentucky and kansas, where we have a lot of people in rural areas pretty far removed from major urban centers, we're talking about a catastrophe, as i see it. you practiced medicine for 25
years. what's your take on that kind of approach? mr. barrasso: well, my take is it wouldn't work for wyoming. but this entire health care bill, law, travesty isn't going to work for wyoming because we hear and you look at the numbers and the congressional budget office says 15% of hospitals in a few years are going to find that they're losing money. they can't stay open. people are going to have to travel long distances -- long distances to get care, to get quality care. sometimes with -- with weather, with winter. very difficult. so i have lots of concerns for all of the rural communities in this country because we have somebody from boston and a big city and doesn't think the way that maybe we do in wyoming or -- or kentucky or in kansas. the other travesty of this is that the president of the united states has been in office now for well over a year. almost a year and a half. and during that entire time it
isn't until just now that he has nominated someone to be in charge of medicare and medicaid. and i've continued to ask on this floor, mr. president, why is that? why has the president intentionally refused to send a name to the senate to be in charge of medicare and medicaid at a time when this country was debating health care legislation? at a time when the president was proposing cutting $550 billion from our seniors on medicare, at a time when our president was pushing -- cramming into medicaid anothe number. mr. mcconnell: the reason some didn't want to set dr. berwick up is because it would confirm the obvious which republicans said repeatedly during the debate on health care, the direction which we were headed, nobody has been more direct on this than senator roberts on the
finance committee, was massive rationing. it is hard to believe that they had decided not to send up the person on rationing just as soon as the debate was over. mr. roberts: if the leader would yield. it is one thing to use the british health care system and be romantic about it to quote dr. berwick for rationing, for practicing health care, cost containment, it's another thing to do it by age, which is happening. but rationing by region, that really should strike fear in the hearts of any person living in any rural area in the country. his tenet for modernizing the american health system is reducing what he calls the oversupply of inventory. that's how he defines it. dr. berwick's oversupply of
inventory is in truth the rural patient's lifeline. i know dr. barrasso understands that. as the leader has said, in kentucky, well in kansas, demanding that a patient in kansas drive 300 miles to wichita or kansas city or denver so that their infant can receive proper care is simply ridiculous. i can foresee a time when the rural health care delivery system will consist of a band-aid and a bed pan. dr. berwick is the perfect nominee for a president whose aim has always been to save money by rationing health care. and i'd like to add at this particular time, in addition to the rationing that the good doctor and the leader have talked about, the n.h.s. utilizes -- that's the national health system in great britain again -- an end of life pathway to death. an end of life pathway to death. that's a shocking -- a shocking description that many british doctors say leads to premature
death in patients who could have otherwise recovered. now, to say that's noteworthy is just unjust, and it's egregious. dr. berwick's ideas on end of life care seem to mirror this death pathway. the quote is -- "most people who have serious pain do not need advanced methods. they just need the morphine and the counseling that have been available for centuries." this -- this is a rather stunning statement, it seems to me, but it is very similar to president obama's remarks about the elderly approaching the end of their life. the president has said that as you get older, "maybe you you're better off not having the surgery, but taking the shots and the painkiller." the only thing missing in that is the walker. so consequently, he has also remarked that the chronically ill and those toward the ends of their lives are accounting for 80% of the total health care bill out here. we know that. there is going to have to be a
very difficult democratic conversation that takes place, end of quote, by the president. it sounds like this difficult democratic conversation has already happened in the united kingdom and that the path real estate to death solution mirrors dr. berwick and president obama's ideas exactly. but age rationing as has been indicated is not the only way to do it, as the leader has pointed out. we have regional discrimination as well. mr. barrasso: well, it is -- it is interesting looking at this whole thing because what we see happening in britain right now -- and there is -- they call it nice, but there is nothing nice about it. it's their national institute for health and clinical excellence. what dr. berwick has had to say about it is very much the opposite of what doctors who practice there have said. and what he has said about this system is that those organizations are functioning
very well and are well respected by clinicians and they are making their populations healthier and better off. but a london colon cancer specialist says a lot of my colleagues also face pressure from managers, managers in the british health system, to tell -- to not tell patients about new drugs. there is nothing in writing, he says, but telling patients opens a pandora's box for a health service trying to contain costs. so it gets down to not quality of care, not availability of care, but the cost of care. dr. berwick says nice is extremely effective, and a conscientious, valuable and importantly knowledge building system. well, this is what someone says. doctors are keeping cancer patients in the dark. this is a quarter of specialists polled by melanoma united kingdom. doctors are keeping cancer
patients in the dark about expensive new drugs that could extend their lives. so let's keep people in the dark rather than tell them what is there that can help extend or save their life. that to me is not a system that the american people want. mr. mcconnell: could i just ask my friend from wyoming who practiced medicine for 25 years. the congressional budget office just said yesterday that this bill is going to cost cost $115 billion more than was portrayed here on the senate floor. would it not be reasonable to assume based on this nominee's views on the issue of rationing that it could be that the way they intend to save that $115 billion if they do is with massive and extensive rationing, boy nominating an individual who has expressed himself so clearly and unambiguously on the virtues of rationing, and the exploding
costs that everyone, the administration's own actuary, the congressional budget office, everybody who knows anything about this subject is weighing in in the aftermath of the health care debate and confirming the concerns that senate republicans raised during the debate, every single one of them has been confirmed by independent groups, that this is the way they intend to cut costs. mr. roberts: i would say to the leader that this really isn't anything new. dr. barrasso has been predicting this for some time, those of us on the finance committee and the "help" committee. we got a double dose. during the health care debate, we tried to warn of the four rationers that were embedded in the bill. that's what i called them. made several statements on the floor. we have the patient-centered outcome research institute, the independent medicare advisory board, the c.m.s. innovation center and the u.s. preventative services task force. the patient -- dr. berwick was actually the vice chair of the
u.s. preventative services task force until 1996, and you remember this -- you may remember this as dr. barrasso has already pointed out, this was the body that recently ignited a firestorm by recommending that women wait until aged 50, aged 50 before they receive a mammogram. that recommendation certainly angered many women and their doctors in america, and whoever said that beat a hasty retreat. we also warned that obamacare, mr. leader -- and my friend from wyoming who will result in higher costs, not lower. a prediction not only by the c.b.o. by the bravest man in america, c.m.s. actuary richard foster, who it is amaze to go me that he is still on the job, thank goodness. recently backed all of that up in terms of higher premiums, higher costs, rationing, access to doctors by the elderly and has renewed his warning time and time again. so now our predictions are
coming true, and president obama's c.m.s. nominee, dr. berwick, will be the man who cuts health care costs by putting the rationing plans into practice. we'll call it cost containment but it will be rationing. i hope my colleagues will join me in carefully reviewing the statements and the speeches and the books and everything else that good dr. berwick -- the good dr. berwick has stated in the last 30 years on rationing. i think that if we do that, that most of us will agree that he is the wrong man, wrong time, wrong job. and i thank the leader and the good doctor for allowing me to join in this colloquy. the presiding officer: the senator from maine. ms. collins: mr. president, i ask unanimous consent that the pending amendment be set aside and call up amendment numbered
3879, which is pending at the desk. the presiding officer: without objection. the clerk will report. the clerk: the senator from maine, miscollins, proposes amendment numbered 3879 to amendment unfunded mandate 3979. ms. collins: mr. president, i ask unanimous consent that the reading of the amendment be south bend -- be dispensed with. the presiding officer: without objection. ms. collins: mr. president, i am calling up tonight the amendment that i debated on the senate floor on monday with senator dodd and other members who were present. this amendment would direct regulators to impose strong risk and size-based capital standards on financial institutions as they grow in size or engage in risky practices, and i'm pleased to offer this amendment on behalf of myself, senator
shaheen and senator brownback. mr. president, our amendment is aimed at addressing the too big to fail problem at the root of the current economic crisis by requiring financial firms to have adequate amounts of cash and other liquid assets to survive financial challenges without turning to the taxpayers for a bailout. i would note that this amendment would ensure that the nation's largest banks and bank holding companies are required to meet at a minimum the same capital standards that are imposed on smaller community banks. that's right, mr. president. it may be odd to realize but the fact is under current law, regulators can allow larger
financial institutions to follow capital standards that are actually less stringent than those that are applied to smaller depository institutions. that makes no sense whatsoever, and that's why this amendment has the strong support of the chairman of the federal deposit insurance corporation, the fdic chairman sheila behr. she has written me a letter endorsing this amendment. she points out it's a critical element to assure that u.s. financial institutions hold sufficient capital to absorb losses during future periods of financial stress. it is imperative, she writes, that they have sufficient capital to stand on their own in times of adversity. this amendment would apply to
some of our largest banks as well as bank holding companies, and it would also apply to nonbank financial institutions that are identified for supervision by the federal reserve by the new financial stability oversight council established by the bill. this council, mr. president, is the council of regulators that will be created so that we have an entity that would look across the economy to identify financial institutions and practices, risky practices that could pose a systemic risk to our economy. mr. president, since i did debate the amendment at length on monday, i'm not going to go on at length tonight, especially since there are others of my colleagues who are waiting to
speak tonight. i would note that i have had a very good discussion with the managers of the bill, and i look forward to working further with them in the hopes that we can schedule this amendment for a vote tomorrow. i would note that this is a bipartisan amendment and that we have consulted at length with the chairman of the banking committee. with that, mr. president, i'm going to ask unanimous consent that the letter from the chairman of the fdic be inserted in the record at this point, which further describes the amendment and the need for it. the presiding officer: without objection. ms. collins: thank you, mr. president, and i would yield the floor. a senator: mr. president? the presiding officer: the senator from pennsylvania. mr. specter: mr. president, i now send to the desk a modification of amendment numbered 3739.
senator from kansas. mr. brownback: i ask that further proceedings under the quor call be dispensed with. the presiding officer: without objection. mr. brownback: mr. president, as i understand, we had agreement that i was going to call up an amendment and then it could be set aside, but just to get it pending. so with that, mr. president, i'd ask unanimous consent that the pending business be set aside and that amendment number 3789 be called up as the pending business. the presiding officer: without objection. mr. brownback: mr. president, i'd ask that -- i send a modification to my amendment to the desk for its consideration. the presiding officer: the clerk will report the amendment as modified. the clerk: the senator from kansas, mr. brownback, proposes an amendment numbered 3789, as modified. mr. brownback: mr. president, i ask further reading of the amendment be dispensed with. the presiding officer: without objection. mr. brownback: mr. president, i now ask that my amendment, the pending business, be set aside and that amendment number 3883 on behalf of senator snowe be
called up as the pending business. the presiding officer: is there objection? seeing and hearing no objection, the clerk will report. the clerk: the senator from kansas, mr. brownback, for ms. snowe, proposes an amendment numbered 3883 to amendment numbered 3739. mr. brownback brownback: mr. pri want to thank my colleagues for getting these amendments pending. i would note that the amendment i called subpoena the one to exempt auto dealers from the consumer -- i called up is the one to exempt auto dealers center the scriewrm protectioconsumerprotections in. if the auto dealers themselves are doing the financing, then they would be covered under the consumer financial products commission. so what this amendment attempts to do is to say let's regulate -- let's regulate auto loans but let's regulate them by who's doing the loan, not just who's processing the paper. it would be my happy to we'd get a broad bipartisan support of my colleagues on this. we do have bipartisan support for this amendment. i'll look forward to a full debate on it tomorrow, but in
the interest of thyme evening, s evening, won't be talking further on it. i'm happy to enter into a time agreement with the managers on this tomorrow to debate and get this amendment for a vote hopefully tomorrow. with that, mr. president, i'd yield the floor. mr. specter specter: mr. presid? the presiding officer: the senator from pennsylvania. mr. specter: i call up amendment 3776, as modified. the presiding officer: without objection. the clerk will report. the clerk: the senator from pennsylvania, mr. specter, proposes an amendment numbered 3776, as modified to amendment numbered 3739. mr. specter: i ask further reading be dispensed with. the presiding officer: without objection. mr. specter: mr. president, i have offered this amendment on behalf of quite a number of senators, senator reed, senator kaufman, senator durbin, senator harkin, senator leahy, senator levin, senator menendez, senator whitehouse, senator freng
frankenfranken,senator feingoldr merkley and myself. this amendment provides that the decisions of the supreme court of the united states limiting claims under the securities act for aiding and abetting will be overturned by this legislation. this amendment is very similar to an amendment which was offered in the 107th congress by senator shelby, the ranking member of the banking committee. for many years, the federal law provided a private right of action against aiders and abettors. as of 1994, every circuit in the federal courts of appeals had concluded civil liability in a
private lawsuit under the securities act. in a radical departure in 1994, the supreme court held in central bank of denver that aiders and abettors are not liable in private suits. the court's 5-4 decision in stonebridge in 2008 complicated the matter even further where the supreme court held that if the defendant did not make representations directly to the person buying or selling the securities that the individual was not liable even if he himself had engaged in fraudulent conduct. this is a subject that i have long been interested in. back in 2007, i wrote to president bush concerning the
failure of the solicitor general's office to file a brief that was requested by the securities and exchange commission in the stoneridge case. and the securities and exchange commission was very concerned about that and i urged that the solicitor general take action. i would ask consent that a copy of this letter to the president be included in the record at the conclusion of my remarks. the presiding officer: without objection. mr. specter: mr. president, the absence of civil liability is striking in this situation because there is criminal liability for aiding and abetting under the federal criminal code. i know of no situation where there is criminal liability for conduct but it does not give
rise to a civil claim for relief or a civil cause of action. during a hearing on this subje subject, a very distinguished author pointed out that professor coffee of the columbia law school pointed out that how unusual that was and his experience, much broader than mine, that this was a -- anomalous. in the case of rencko securities litigation, reported at 609 fed sep. 304, judge gerald lynch made the same point -- quote -- "it is, perhaps, dismaying that participants in a fraudulent scheme who may even have committed criminal acts are not answerable in damages to the victims of a fraud. there are accomplices and there
are accomplices. after all, in the criminal context, when the godfather orders a hit, he is only an accomplice to murder 1 who counsels, commands, induces or procures, but is he, nonetheless, liable a for the commission of a crime. likewise, some criminal accomplices are deeply and indispensably implicated in the wrongful conduct. but on the current state of the law, there is no accountability for civil damages for aiders and abettors." professor john coffee made it point saying -- quote -- made the point in our hearing -- quote -- "does anyone really believe today that in this post-madoff world that the s.e.c. by itself can adequately deter most secondary participants in securities fra
fraud? even when the s.e.c. sues, its remedial authority is very limited. it can neither recover losses from injured investors nor deter fraud in the first place. the s.e.c. liability authority is so limited." the comparative impact on private lawsuits is noted by that in the enron case, private litigants recovered $7.3 billion. the s.e.c. recovered $450 million. in the worldcom case, private litigants recovered $6.85 billion; the s.e.c. recovered only $750 million. in the denegy case, private litigants recovered $474 million; the s.e.c., $198 million. in the a.o.l.-time warner case,
private litigants recovered $3.1 billion; the s.e.c. recovered $316 million. according to testimony given on such legislation last year before the subcommittee on crime, the s.e.c. recovered a mere $8 million from security law violators since enactment of sarbanes-oxley in 2002, whereas the private litigants in enron alone recovered $7.3 billion so that the impact of the private lawsuits is -- is very, very important. we have seen the extraordinary impact of wall street fraud, the losses of 6.5 million jobs, the reduction of the gross national product enormously, and this
private right of action is a very, very important part of keeping wall street honest with the litigation which it has produced. there has been a letter filed by a number of entities in opposition headed by the u.s. chamber of commerce raising the point that -- quote -- "the provision would subject defendants to liability whether or not they have any idea that the conduct they are assisting is wrongful." well, that is a gross misstatement of what this bill does. this amendment has been very narrowly drawn. it applies only to those who knowingly provide substantial assistance to the primary violator.
the standard is more defendant protected than the standard set forth in senator shelby's legislation which he introduced in 2007. the cianter establish in the shelby bill was reckless, not knowingly acted upon. it is identical to the restrictive standard in 15 u.s.c., 78 t.e. governing aiding and abetting actions brought by the securities and exchange commission. in order to eliminate any conceivable doubt, the modification has been added to the amendment as originally filed specifying -- quote -- "for purposes of this paragraph, a person acts knowingly only if the person has actual knowledge of the improper conduct underlying the violation described in the preceding sentence and the person's role in assisting that conduct."
so in essence here, we have a very tightly drawn statute. it had been introduced earlier as senate bill 1551. i thank the distinguished chairman of the committee for his accommodation in listing this amendment for argument. this is a very important bill. there are a lot of amendments pending, but i do believe that among the matters to be considered in this bill, this is one of the most important. you have a lot of people very badly damaged by these security fraudulent actions. the securities and exchange commission is limited in personnel and staff to act on it, and these private rights of action have long been a source of enormous aid in enforcing the law. in antitrust cases, in securities act cases, private --
private prosecutions are enormously important. by way of footnote, this is the subject of a law school comment that i wrote many years ago at yale about the background for private action, and it is a very, very important supplement to what subofficials and public agencies can do -- to what public officials and public agencies can do. so i urge my colleagues to support this amendment. i yield the floor. i suggest the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:
mr. dodd: mr. president? the presiding officer: the senator from connecticut. mr. dodd: mr. presint, i ask consent the call of the quorum be rescinded. the presiding officer: without objection. mr. dodd: mr. president, i want to spend a few minutes, if i may, and i'd like to address the reed, jack reed of rhode island, and scott brown of massachusetts, the amendment that they offered earlier and was voted on earlier. i'd ask consent that my comments appear prior to the vote, if i may, as well. the presiding officer: without objection. mr. dodd: mr. president, i strongly support this proposal that was adopt add little while ago that was offered by our two colleagues from? he, senator reed of rhode island and senator brown of massachusetts. as both of these colleagues of ours speak with some authority on this amendment. jack reed of course is a graduate of west point and served for a number of years in uniform for our country with
great distinction, i might add. senator brown has spent, as i heard him say, some 30 years in the national guard in the state of massachusetts, i believe. and so he can also speak with more than just passive authority about the importance of the amendment which they offer and which was adopted overwhelmingly, i'm proud to say, by our fellow colleagues here. i don't think there was a negative vote on the amendment. and i commend my colleagues for their expression of strong support. but it is a very important amendment because it sets the table for a debate we'll have tomorrow regarding a certain area of our finance companies, and this amendment is -- establishes an office of military liaison within the consumer bureau that we have created in this overall legislation. in today's "new york times," there is a description of a case, the case of matthew garcia, a 25-year-old army specialist who was recently subjected to a trick called --
what they call yo-yo financing -- i put that in quotes -- by an unscrupulous car dealer, just as he was preparing to deploy to afghanistan. according to the story, special specialist garcia was stationed at fort hood, texas, signed up for a car loan at 19.9% interest raivment that'rate. that's not even the abuse, believe it or not, as high as those rates reform the problem came when specialist garcia drove the car home. the auto dealer called specialist garcia several days later to say that the financing contract had actually fallen through and he demand an additional $2,5 in cash to make sure he papped, the dealer blocked the soldier's car in so that no one could leave. mr. president, that is the way that some -- and i say very few, but some auto dealers are treating our men and women in
uniform, and that is why we need the office of military liaison within the consumer financial protection bureau. unfortunately, the story of specialist garcia is not unique. it's all too common. whether it is in the area of auto financing, payday lending, mortgage lend, cash check, these unrecreated areas of finance. so many of our fellow citizens have subjected to this on an hourly basis, let alone a daily basis. creating an office within the consumer financial protection bureau to focus on the problems of our young men and women in military, our men and women in uniform, and their families is an important contribution to this legislation. and i want to thank both of our colleagues for offering this proposal. the office that we're creating with this amendment would also help resolve many of the complaints brought to the office by our service men and women. it'll help advise the director of the bureau's rule writing to take into account the special need of military families, and
by doing this, it'll help our military's readiness as well. mr. president, i'm also going to ask consent that letters from the secretary of defense and the secretary of the army, that they have submitted and sent to me and other members, laying out the value of having some protection within the automobile financing area be included in the record, if i may, as well. the presiding officer: without objection. mr. dodd: because i think it is important that we have this language in the bill. let me emphasize as well that, unfortunately, we're not talking about many auto dealers that engage in financing that cause these problems. but, like most laws on the books, if they were only written because there were a majority of people committing the owe finances, it obviously wouldn't be hard to make the case against them. but we don't write lewis for the many. we write laws for the few. those who will abuse their
offices, abuse their operations in such a way as to cause great harm to people who otherwise have no protection. i've talk add lot about the consumer financial protection bureau over the last number of days that we've debated this legislation. the importance of this is for the first time in the history of our country that individuals who are taken advantage of in the financial services sector would have some place to seek redress for the grievances that they've been subjected to. i don't think this is a radical idea, particularly in light of what so many of our fellow citizens have been through over the last several years where homes have been lost, jobs have been lost, the tremendous abuse that's occurred in too many of the areas of what i call the shadow comirks the unrengted areas of our economy -- the unregulated areas of our economy. the second most important purchase that the average person makes -- the first being a home. we all know what can happen, as
we've seen with brokers and mortgage lenders who were unrengted taking advantage of people by getting them into situations they knew they couldn't afford. buyer beware. i don't argue with that. we all bear responsibility to be better-informed about financial arpgs that we get into-- --arrangements that we get into it. but to suggest that this is a level playing field when it comes to home mortgages or car finance something don't belie the facts. the analogy may not be perfect, but it has some value in my view. we don't expect patients, necessarily, to be as well-informed when they are making decisions about their health care. there is something called medical malpractice. obviously we have an obligation to ask questions before we submit ourselves to surgery, other things. but we know in the end that if a doctor has abused the hippocratic oath and put a patient at risk, then there is the ability to seek a redress of
those harms, called medical malpractice. it allows a person who has been injured or harmed because of the misfeasance or malfeasance of someone in the medical professional to get recovery, because we understand it's not exactly a level playing field when the average person is trying to make intelligent decisions about their medical care. the same can be said, in many ways, for mortgage lending. er you can't expect the -- you can't expect the average person to understand all the details necessarily involved. i suggested there is a higher degree of responsibility in the area of mortgage financing by a borrower than there would be necessarily in the case of medical malpractice, but nonetheless, i think there's some legitimate comparison. some have suggested mortgage malpractice may be an appropriate description for what happens when you're across this table from a lender, you've picked out the home, you've fallen in love of t your family section sited about the new
place. maybe in most instances -- or many instances, it is the first home you're buying. the idea that are you're going to have your own home to raise your family is gets -- it is a very emotional time. and so that lender across the table who's being unscrupulous in his or her behavior can extract commitments and so forth from that borrower that could put them at a distinct advantage. and so we believe that in those instances, one, there should be good underwriting standards required by law and that secondly if there is some harm done, either misfeasance or malfeasance of someone in the mortgage lending business, that you can get some redress interest wh that occurs. well, car finance something not the same as a home mortgage, but if you're an 18- or 19-year-old person in urine form and you find that automobile you love and you're so attracted to it -- again i'm not suggesting borrowers don't have a responsibility to be well
well-informed, but weigh know what happens here. all of a sudden end up like specialist garcia when you think of a bought the automobile. the fact that you then find you've got a $2,500 extra charge, the wheels have been blocked on your car so you can't drive away. that's the kind of individual that most of us believe ought not be allowed to continuing to operate under those circumstances. we agree when it comes to financing like this we shouldn't say to one sector, you're exempt. you don't have to worry about any of the laws. we make that local banker who would also like to stheandz loan, they're subjected to the law of protection. the credit union is subjected to the same laws. why should someone engage in the finance pg of a product, an automobile, be exempt? the local bank isn't. they have to meet their requirements under the law. to make sure that they're not abusing, not that many do rs but that some do. the rights of an individual to
protect them from a great disadvantage in that second-largest purchase that a person may make aside from their home. so i know tomorrow there's going to be a debate, senator brownback my friend from kansas is going to offer an amendment to exempt auto dealers from financing. auto dealers aren't covered. this idea of cofnlings. if you're an auto dealer, you're not affected by this, anymore if you are real estate butcher or dentist or -- if you're a butcher or dentist. if you're in the financing business of that carks you're the one sitting engaging in that contract, if you will, despite the fact that the papers may have been written up by some other lender that is doing business with the automobile dealer, shouldn't we provide to that individual the same kind of protection that they'd expect if they went to the local bank, the community bank to get a car loan or to the credit union and got a car loan? we require them to meet basic rules, but not an exaggerated rules but basic protections so
you're not taken advantage of. i have a wonderful relationship with my auto dealers in my staivment i fought hard for them last year. the program we had on the clirntion that allowed for people to be able to turn in older automobiles -- i fought hard for that. i have a great relationship, in fact, with -- they offered me a nice reward last night for my efforts i made on behalf of auto dealers in my staivment i am very proud of t the overwhelming majority of my dealers, as i know is the case in all of our states, do a good job, are fair. but all of us know there are also people who take advantage and certainly to be exempt from any kind of rule making when it comes to protecting people ought not to be the kind of decision we're making. here we've just adopted overwhelmingly the reed-brown amendment. it says we're going to establish within the office of consumer financial protection an office
to protect men and women in uniform for the abuses of people who would take advantage of them. and then less than 24 hours later we write an exemption and take away one of the major problems that these young men and women have. what an irony. what does this institution saying? on the one hand we vote 100-0 to say, you know what, our men and women in uniform ought to be protected from people who take advantage of them. and then less than 24 hours later we say, but, by the way, a major area of abuse that occurs, you're exempt. don't worry about t the law doesn't apply to you. and i'm so, mr. community banker, i'm sorry, mr. local credit union, you're going to have to live by the rules. so the great disadvantage at a local level. community bankers and credit unions from rightfully annoyed that they may be subjected to one set of rules and the person down the street in financing an automobile to an unsuspecting purchaser is exempt. that doesn't make any sense to me. and i hope that my colleagues tomorrow will react as i have to
this thing. and, again, i'm not in any way indicting automobile dealers. quite the contrary. ace say, theas i say, they've bh an awful lot. a we made major efforts here to get them back on their feet and i'm proud to have been involved in that. to see to it we restore and maintain a strong manufacturing sector in our country of automobile dealerships and automobile manufacturers. but to turn around at the local level and say, i'm going to give you a pass on those that would abuse the law and take advantage of people -- in fact, it is an in invitationo do it. we're not just sending a pledge to those who are presently engaging in this, but those who may disierksd you know, this isn't a bad area of the business to get involved n here is the local bank has to pay -- meet those obleses. the local credit union will or some other financing operations that are covered by the way under our legislation.
now you'll no longer have shadow operators here. we cover payday lending, we cover the check-cashing operations involved in financial services of products. but in the second-largest purchase, the average american every makes, you're going to be exempt from any of the laws involving consumer protection when it comes to financing. so i know there's a lot of pressure, a lot of lobbying going on, all over the place to carve out this exception. but i urge my colleagues to please be careful about this, to walk in tomorrow and to basically gut the reed-brown amendment by saying, in this one major area of abuse, read the letter from secretary gates, read the letter from the secretary of the army, thereon our colleagues who are listening to the people who are on their military bases in their respective states what goes on every single day by those who take advantage of people out there who are in uniform. with that, mr. president, i would urge my colleagues
tomorrow when we have a fuller debate on the brown amendment that people not be lured away from the very vote they cast this evening in support of putting an office within the consumer financial protection bureau and basically gut the very bureau before the ink is dry and the amendment was adopted unanimously here by allowing for this massive exception which would allow for consumers, particularly in uniform, to be taken advantage of. with that, mr. president, i'm going to ask unanimous consent, if i may, that the pending amendments be set aside and that in order to call up the following amendments and that once reported by number, they be set aside. senator leahy's amendment number 3823, senator durbin's amendment number 3932, senator franken's amendment number 3808. the presiding officer: without objection.
mr. dodd: with that, mr. president, i assumed that there was going to be some further -- i see my good friend from alabama. i yield the floor, mr. president. mr. sessions: mr. president? the presiding officer: the clerk will report the amendments by number. the clerk: the senator from connecticut, mr. dodd, proposes amendments en bloc numbered 3823, 3932, and 3808. mr. sessions: the senator from alabama. mr. sessions: i'd like to call up amendment 3832 and ask that it be considered. the presiding officer: without objection. the clerk will report. the clerk: the senator from alabama, mr. sessions, and others proposes amendment numbered 3832 to amendment numbered 3739. mr. sessions: mr. president, i would ask unanimous consent to
waive the reading of the amendment and be allowed to speak on it. the presiding officer: without objection. mr. sessions: mr. president, they say the proof is in the pudding. it is really an ultimate test of an idea or an evaluation. it literally means that you have more than a wonderful recipe. you want to know what it really tastes like in the end. the actual result is what's important. so i think the american people know that in the bill we are dealing with today, we are still too involved in the maneuvering of the dissolution of companies who fail. we create special procedures for larger companies than we do for routine companies throughout the country, and my colleagues tell us this bill has the right ingredients, but the ultimate
result, i think, is to provide government funded bailouts in some way or another through another name, called actually now orderly liquidation authority. i understand that the provisions are better perhaps than they were when the discussions begin, and more rigorous, in some ways i still feel that more needs to be done to create the kind of integrity and the consistency and the printed approach to dissolution of a failed corporation that good law requires. the legislation that's before us provides the government with vast sweeping regulatory authority. i know that a lot of people in the country -- and i respect my good friend, senator dodd. he is such a fabulous senator and so knowledgeable about these areas, but i talked to my car dealers, and they are -- they
have to meet with state regulatory loan matters, and they have always had to deal with state legislation and control and certain federal rules apply. but what this legislation does is one more example of an expansive mentality as part of fixing a discrete problem which started out to be fixing wall street too big to fail and now we have got a historic alteration of the respect we get for state and local government to manage lending matters. and we have got the federal government now doing that. under this consumer title. and i'm not sure we fully thought that through. i don't think it's necessary, frankly. but some of the regulatory authority that was involved in controlling financial
institutions that were part of the financial price that we faced i think was -- caused -- this regulatory authority caused the failure to prevent the crisis. it may have even made it worse. instead of ending too big to fail, this legislation, i'm afraid, creates and institutionalizes it. professor john taylor, the author of the taylor rule, which because it was violated probably helped precipitate this crisis, if his rule had been followed carefully by the federal reserve, i think we would have had a far less serious problem than we had. he is a professor of economics at stanford university, well respected. he made this point clear in a recent editorial in "the wall street journal." this is what the john d. taylor, the taylor rule author
observed -- "the financial crisis of 2008 demonstrates why it is dangerous for the orderly liquidation section of a dodd bill to be -- to institutionalize such a process by giving the government even more discretion and power to take over businesses." he goes on to say -- "the proposed liquidation process would have the unintended consequence of increasing the incentive for creditors and other counterparties to run whenever there is a rumor that the government official is thinking about intervening." and he goes on to describe other reasons why he thinks the language as we have it is unwise. peter wallison, former general counsel to the treasury department, voiced his strong opposition on the proposed legislation, saying -- "not only does the dodd bill establish too big to fail as a national
policy, but it makes the idea real by creating a system for bailing out large financial companies if they get into trouble. of course, bailing out is not the phrase used in the bill. the preferred language there is orderly liquidation." so mr. wallison makes clear -- i won't go on and quote all of his remarks, but he makes clear why he believes that this is a dangerous institutionalization of special privileges for large companies. indeed, i think the dodd amendment signals to creditors they will get a better deal if they -- if they lend to the big regulated firms, and this is what mr. wallison says, they believe they will get a better
deal if they lend to the big regulated firms rather than lending to the small competitors, and the bill does this by making it possible for creditors to be fully paid when a too big to fail financial firm is liquidated even though this would not happen in bankruptcy, close quote. mr. wallison hits the nail on the head, i'm afraid. select creditors, those otherwise deemed too big to fail will definitely get a better deal under the back room or the group process of an orderly liquidation in this legislation than they would in bankruptcy. let me be clear, the unhealthy connection to wall street can only be eliminated i think through the legitimate utilization of a historic bankruptcy process. orderly liquidation as defined
here will not achieve the result. when the legislation was first introduced, senator leahy wrote the judicial conference of the united states -- that's the chief justice in his judicial conserves group of justices there -- and asked them for their views on the legislation. the judicial conserves responded that the bill failed the ultimate test. they said this -- "this is a substantial change to bankruptcy law because it would create a new structure within the bankruptcy courts and remove a class of cases from the jurisdiction of the bankruptcy code. the legislation by signing to the fdic the responsibility for resolving the affairs of an insolvent firm appears to provide a substitute for a bankruptcy proceeding." and that's a significant statement. this is the supreme court, the
judicial conference giving us their insight into this. the letter goes on to say -- "this would be especially problematic if creditors have changed position based on rulings in the course of the bankruptcy proceeding. the legislation does not envision "-- let me continue to quote this." the legislation does not envision objection, participation or input from the bankruptcy creditors whose rights will be affected in the course of appointing the fdic as a receiver." in other words, the normal process by which creditors and all can participate, object, cross-examine is cut short. the letter goes on to say -- "indeed, the legislation proposes to deal with this petition in a sealed manner." not in a public, open manner where lawyers cross-examine
witnesses under oath, but in a sealed manner, the judicial conference says. and it goes on to say -- "only the secretary and the affected financial firm would be noticed and given the opportunity of a hearing. the financial position of affected creditors may have been changed within the context of the firm's bankruptcy case in such a way that the creditors' rights may have been changed dramatically." they go on to say that this could raise constitutional questions. they said -- "any resulting due process challenges" -- talking about the due process clause of the u.s. constitution -- "would impose a significant burden on the courts to resolve novel issues." close quote. in addition, they go on to say this -- "we note that pegz under this title involving financial firms would be filed in a single
judicial district, delaware. the judicial conference favors distribution of cases in other courts." well, i think the judicial conference is making clear one thing in its correspondence. bankruptcy with its rule and procedures, not orderly liquidation authority is the best way to approach to dissolving a financial institution. now, we're not talking about banks. banks would be still contained within the fdic. they have a long history of being able to resolve banks in financial trouble. but i think i can only say i share the opinion of the judicial conference, and i think it's shared by a number of presidents of the federal reserve banks. in a recent testimony before the joint economic committee, charles i.plauser, president of the federal reserve bank of philadelphia, stated the
following -- "i believe the most credible way to do this would be to amend the bankruptcy code to deal with nonbank financial firms and bank holding companies. expanding the bank resolution process established under the fdic improvement act as the current senate bill does would give regulators and policymakers the opportunity to exercise a great deal of discretion in a liquidation or restructuring to reward some creditors and not others. a bankruptcy proceeding would follow the rule of law and thus would be less susceptible to manipulation by private parties or the political process." so that's the opinion of the president of the federal reserve board of philadelphia.
does anybody think that the dissolution of g.m. and other companies and all the things they have gone through was not politically manipulated? anybody that's closely followed it does. that's one of the things that outraged americans. they are angry that big companies got special procedures for their failure to pay their debts, where the average small company, mid sized company, even large company in america would be subject to the rigors and the fairness and the order of established bankruptcy law. so the president says that it would -- the president of the federal reserve of philadelphia said it would be less susceptible to manipulation by private parties or the political process. amen. that is true. you get a bankruptcy judge, he has a 14-year term, they are used to handling these cases and
they can handle them. limiting government's choices and leaving resolution to the rule of law and the court system in my view is the best way to end bailouts. limit unhealthy riffing taking and extinguish the notion that some institutions are -- limit the unhealthy risk taking and extinguish the notion that some institutions are too big to fail. that's what the president of the bank said. i couldn't agree more. that's why i've introduced the bankruptcy integrity and accountability act that i believe we'll be able to vote on tomorrow. there is no greater legal system than the one we have in america. it is a system that's admire not only because it is -- admired not only because it is efficiently, in most instances,
but most of all because it is fundamentally fair. you know when you walk into a courtroom, you know you're going to get the same treatment as other parties. whether you're a mom-and-pop organization or big a.i.g. the amendment i've offered will provide that same type of security. one issue that's been raised by a number of experts is the lack of confidence in the fdic to adequately handle these type of disillusions. i share those concerns. professor wollason stated -- quote -- "the absence of any expertise in resolving failed nonbank financial institutions anywhere in the fell governmentl government is one strong reason for relying on bankruptcy for most failures. is there is likely to be expertise anywhere in resolving failed financial institutions, it would be in the bankruptcy courts." and i would agree.
mr. sessions sessions: bankrupte first choice for disposing of a failed nonbank institution would avoid a number of problems. these are problems that are associated with creating a government resolution authority. governments are by nature political. it would assure that the prebank creditors take losses of some kind, avoiding the moral hazard and maintaining market discipline. in other words, if you don't feel like and don't have to take a loss by an improvident investment, it encourages you to make more and more risky investments, creating more danger of improvident financial activities in the future. and the rules will be known in advance under bankruptcy, so creditors will be aware of their rights as well as the risk. creditors will have -- decide
whether or not they believe a company has prospects to repay them, that it would outweigh the risk of throwing good money after bad in helping maintain the company in bankruptcy. bankruptcy judges look forward and try to save companies. they stop litigation that can shut a company down. they give the company a chance to reorganize and succeed and pay all their creditors. that's always their goal. but good bankruptcy judges know from history that many companies just can't be saved. and the best thing to do is shut them down before they lose any more money and distribute the remaining assets equally and fairly according to established rules of priority as part of the bankruptcy process. that's what bankruptcy is. so in the amendment that i've offered, we make sure that the necessary expertise for dissolving these institutions is available. we allow the federal stability
oversight council, the proper functional regulator, the federal reserve and the department of treasury to file legal briefs in the court if they need to, to make sure their voice is heard concerning relevant issues. and this will allow the court to gain available information and insight. we also concentrate federal bankruptcy expertise by limiting venue in the cases to the 12 districts with the federal reserve banks. this is something that we vetted with professors and bankruptcy experts. harvey miller, the renowned bankruptcy expert, looked at this provision and told us he believes it's properly tailored to provide the necessary expertise to address these types of cases. i believe it's something the judicial conference of the united states would agree is better than limiting it just to one court a situation that they raised -- one court, a situation that they raised as problematic. so on substance, i think we can't overemphasize how the
resolution authority fails the ultimate test. professor david skhiel wrote an opinion piece in the "wall street journal" with mr. wallasson on april 7 of this year in which they asked this question: "which system is more likely to eliminate the moral hazard of too big to fail? and concluded bankruptcy was the answer. they posit -- quote -- "in a bankruptcy, as in the lehman case, the creditors learned when they lend to weak companies, they have to be careful. the dodd bill would teach the opposite lesson," they conclude.
let me highlight for my colleagues what i believe this amendment does and why i think it's necessary. first, the amendment protects against systemic risk by eliminating the moral hazard that arises when financial companies and their investors think the government will bail them out. under -- or, indeed, under the approach of this legislation, financial company management and shareholders could have an incentive to seek resolution authority, thus gaining access to taxpayer bailouts. under the bankruptcy, integrity and account act act that i've -- accountability act that i've offered, the only offer for insolvent company is through the bankruptcy process. they can survive bankruptcy, but
if they are unable to survive it, they shouldn't survive it. and that process would be either reorganization or liquidation. and there's a process for that to be established. under this system, all costs of reorganizing or liquidating the company are paid by the private sector, by the failing company and those who chose to do business with the failing company. thus, unlike under the dodd bill, there will be no federally administered resolution authority with access to a bailout fund or borrowed money from the treasury, federal debt guarantees or any other kind of tool that politicians might access to bail out some politically empowered private company and to avoid the day of reckoning that rightly should fall upon companies who can no longer operate effectively. under -- unlike under this bill, no federal reserve section 133
authority with which the fed can pump taxpayer money into firms to rescue them from insolvency exists. the second way this amendment reduces systemic risk is by protecting against the threat that derivative contracts will cause one company's failure to cascade through the financial sector like falling dominoes. under the current code of bankruptcy, derivative contracts are exempt from the automatic stay that prohibits the collection of debts outside the bankruptcy court. all -- virtually all other debts are stayed when the bankruptcy process occurs. but as a result of this event, derivative counterparties can demand collateral in satisfaction of a debt and this can create a run on a failing company's assets as more and more derivative cowrptparties cs
demand their collateral. because of the interconnectiveness of the derivatives holding, a run on the failing firm's assets can cause the failure to cascade through the financial system as party after party becomes exposed to succeeding demands on collateral. so this is a problem that's been raised. this amendment would stop that danger by allowing debtors, with the consent of the new federal stability oversight council, to invoke the automatic bankruptcy stay against derivative obligations when the facts show that the debtor's failure could genuinely trigger cascading risk. so this would allow bankruptcy law to -- allow to alter bankruptcy law where this could play a contributing factor. and this would give the kind of discretion i think would help avoid that. finally, the bankruptcy integrity and accountability act
reduces systemic risk because the new chapter 14 procedure will affly all nonbank financial institutions regardless of their -- apply to all nonbank financial institutions regardless of their size. under the act, every one will get the same protection, no one will have access to special washington favors. this, too, protects against systemic risk. under the approach of this legislation, there will be special rules for those companies that are wealthy and powerful enough to be determined too big to fail. those special rules will include a publicly funded and government administered resolution authority that affords the financial firms the right to fail without facing under oath their creditors and without bearing the costs of the proceedings. also included will be the right to access taxpayer funds for the payment of certain private debts of the firm. so this special system created
by the bill before us would create incentives for smaller companies to consolidate to lay too big to fail. as a result -- to delay too big to fail, as a result, risk auto could be concentrated more in a few hands and the failure of one company could threaten to bring down the entire system. in the place of this created system under this legislation, a system that protects large companies more than all others, our amendment would create a fair andy well system for failure of all financial institutions, regardless of their size. as a result, financial institutions would have no incentive to become larger and thereby actually increasing the risk that one company's failure will cause failure to the entire financial sector. there's one critical process in bankruptcy that we can't overlook and cannot be overstated. when people loan money to or buy
stock or buy ponds in a corporation or otherwise provide credit, they have an expectation that if that company fails to prosper and is unable to pay all the debts that the company owes, that the company at least will be hauled into bankruptcy court and they will have an opportunity to present their claims and to receive whatever fair proportion of the money that is still left in the company as their payment. and there -- it may be 10 cents or it may be 90 cents. they understand that bankruptcy judges have the authority to allow the company to continue to operate, to stay or stop people from filing lawsuits against the company to collect debts, to allow the company a period of time to operate, to evaluate whether they can pay off more debtors by continuing to opera operate, then shutting the company down. if a bankruptcy court sees the
company is so badly in financial crisis that it's going to collapse anyway, the court can shut it down immediately before they can waste assets and rip off even more people. and that's what a bankruptcy court does every day. the judicial conference letter i referred to earlier notes that under the resolution process, some -- that we have in this legislation, some other problems might arise. they note this -- quote -- "the legislation does not envision objection, participation or input from the bankruptcy creditors whose rights will be affected in the course of appointing the receiver." so it does this in a way unlike the classical way that company officials have to respond when their companies fail. what happens is the creditors all gather.
the bankruptcy petition is filed, voluntarily or involuntarily by the creditors, they are hauled before a federal bankruptcy judge who has a 14-year term and specializes in bankruptcy matters. they're required to produce records and documents of the financial condition of the company. the c.e.o. is called in to testify under oath. the bondholders, the stockholders, the creditors, secured and unsecured, the employees, the workers all get to have lawyers and they examine the witnesses that can be called, they can call their own witnesses. and in the result, you create a factual record that helps set the groundwork for the orderly priority setting of who's entitled to be